By OLASUNKANMI AKONI

Mr. Ademola Adedeji is the senior partner, Rightsource Consulting, a tax and auditing firm. The firm is a consultant to Lagos and Ogun States governments on internally generated revenue, among others. The tax expert speaks, in this interview, on tax and audit system in Nigeria among other economic issues. Excerpts:

Mr. Ademola Adedeji

In Nigeria today, tax firms rarely enjoy patronage from business sector. In other words, they have less patronage. Gives us insight into what RightSource Consulting is all about and your impact in the tax and auditing system?

RightSource Consulting was established in 2003 to provide advice on tax planning with an objective of minimizing tax burden on organisations through a careful arrangement of their activities.

The firm adopts a robust approach to tax services, which includes taking advantages of the loopholes in the tax law to help clients keep tax issues from becoming tax problems. Our function as auditors is to examine the accounts presented to us by the management/directors of the company.

As auditor, we are neither responsible for the preparation of the accounts nor for maintenance of the accounting records of the company; as any accounting services that we provide will be distinct from our functions as auditors.

In arriving at our opinion, we are required to consider the following before we expressly form our opinions on them in our report: whether adequate internal control procedures are instituted to safeguard asset, prevent and detect fraud and other irregularities, whether proper accounting records are maintained, whether we have obtained all information and explanation, which we consider necessary for the purpose of our audit, among others.

But some tests have to be carried out and the nature and extent of such tests will vary according to our assessment of a company’s system of internal control and may cover all aspects of the company’s business activities. After this assignment, we shall report to the board of directors of the company any observation we may consider necessary on the company’s system/records which we may come across will form our basis of opinion on the audit job.

We appreciate the impact of international financial reporting standard (IFRS) in the operations of companies with multinational ownership or control and the foreign tax implication on the accounts, and that is why we embark on in-house training of our work force on the understanding of the statutes of IFRS and tax law system on the accounts for the foreign companies which have a direct foreign investment into Nigeria business environment.

As a licensed chartered accounting firm, we do auditing before we can ascertain the amount or liability that will be taxed, the two (tax and auditing) works together. One must have the two before he can brand himself to be complete. Also one cannot say he is a chartered accountant without being chartered tax personnel.

The basic information is gotten from audit. That is why federal and state government call it tax audit assessment. Because the two must be combined in order to get the taxable liability. The final seal to it is to study law with it. That gives one the opportunity to defend, assess and verify.

The federal and state governments have been under serious criticism from members of the public over the nation’s tax regime. What type of tax regime would you advise the Federal Government to adopt?

I will recommend indirect tax method. It is not difficult for Nigeria to adopt considering the level of tax evasion in the country. There is a way government can do it easily. Government should place tax on goods and services; this will automatically eliminate tax evasion by both public and private enterprises. While the consumer is paying the cost of the goods or services, he or she will be paying the tax along unknowingly. With this, government will be saving much time in the process of tax collection. And they will be getting their tax as and when due. If government nonetheless chooses to collect tax through direct assessment, there will be chaos. Citizens will develop hatred for the administration.

That is why if I am the president or governor of any state, I will adopt indirect tax. It affords immediate payment of tax into the coffers of the government. In indirect tax, the payment is never a burden to the payer because he pays the tax along with the goods and services. Also adopting indirect tax will further keep investors in the country.

In Nigeria, we practise direct and indirect tax methods. Our orientation has not gotten to the level where we can practise direct tax. When we develop up to the status of the advanced countries like United States of America, USA, England and others, we can then return to direct and indirect tax.

From your experience, in which sector can we find evasion of tax more, public or private?What are the economic implications of tax evasion?

Public sector organisations do not pay tax. Even within themselves they do not pay tax. They use government connection not to pay. With our wealth of knowledge and experience in the field, private industries pay tax more than the public in Nigeria. The private will pay because the Federal Inland Revenue Service (FIRS) will be on their neck until they pay. That is why we came into being, to help the private industries on tax. While we are helping the private, we also extend our services to government as well. In the public sector, the pressure is not on them as those in the private sector. The pressure is what makes those in the private sector to complain of multiple taxations.

Lagos State government has tried in the area of organising tax collection. For instance, the state government collects land use charge and re-distributes the funds to the local governments. This, to me, is the best form of tax system other than individual collection. They make it indirect tax through the issuance of bill to the owner of a property, based on the assessment of the property. This has helped to bring orderliness into tax collection system.

This is against the earlier style where the citizens alleged that they (tax officials) constitute nuisance to the environment. We, as advisers, implored government to soft pedal on the pattern of collection. The tax law stipulates that one can pay installmentally.

The collection and distribution of Value Added Tax (VAT), would you say it is achieving any positive impact?

The distribution system of VAT in Nigeria is wrong. For instance, FIRS confirmed that 50 per cent of VAT is generated in Lagos. How much does FG give back to the state? I think VAT should be based on derivation. If Lagos contributes 50 per cent of VAT, the best is for the FG to give them back 50 per cent. If Ondo generates 30 per cent, give it to them. So what should go to each state should be based on the VAT derived from that state, so that the environment where those industries who contribute the chunk of the VAT will be developed. And it will bring more investors into the country.

Without infrastructure, the industries cannot. It is the fund collected from the FG that the state government uses to provide the basic amenities for the environment where the fund is generated.

FG has other sources of revenue they can depend on. The tax belongs to the state government and with this kind of system there will be balance in terms of development. This is against the act of collecting huge VAT from one state and disbursing large part of it to another state. They cite population and federal character as the parameters for distribution of VAT in the country. The pattern of distribution by the FG is wrong. The VAT is not well distributed. The FG is cheating other states, particularly Lagos. I would like to advise the FG to look critically at this issue since all the governors in the country are in one way or the other complaining over the derivation and the method of disbursement.

The governors will be motivated to develop their state in other to attract investors. This will only happen when the governors receive their rightful percentages, as derived from their state.

Do you see the possibility of FG acceding to this?

This is because the Federal Government is selfish. What are they using the funds for? They have crude oil which is enough for the FG to manage. But there are a lot of loopholes and wastage which they have failed to address.

The FG should leave VAT for the state government to develop their states. Even though they collect it on behalf of the state government, they should return it to the state government where the funds are generated. For instance, Lagos collects land use charge on behalf of the local government councils. And they disburse it accordingly based on the percentage derived from each local government.

The federal government, however, is not doing this. Instead the federal government base their sharing formula on federal character and population.

The FG should forget about tax. But if they want to collect, they can do so. As long as they are ready to remit the funds into the coffers of the state government. This is the best way.

Apart from tax, the FG has other sources of funds. They have over five means of sourcing for funds inside the federation account.

As a practising tax expert, how much do you think the FG is making from VAT, annually, a kind of rough estimate?

The country is generating a lot of money from VAT. The actual estimate I cannot give you now. But it is close to over N100 billion yearly. That is why the FG is not disbursing the right fund to the state government because of so many interests to take care of. It is a gradual process. Just like democracy, we get there someday and I hope very soon.

Definitely, our tax system could be described as imbalance, unfriendly to the masses and you will agree with me that the poor feels the burden more than the rich?

Our system should be blamed for this. If you are rich, you can evade tax. But if you are poor, you cannot. That is our culture in Nigeria. The rich can easily call top government functionaries and he would help them to evade tax one way or the other. The poor cannot benefit from this. Our system allows corruption amongst top government functionaries. It is easy to track poor man but not the rich man. The poor man feels the burden more than the rich man.

What are the similarities and differences in the tax regime between Ondo and Lagos States, as a consultant to both governments?

Lagos has been into tax collection since the administration of Olagunsoye Oyinlola. Ondo began their tax less than five years ago. The awareness is glaring in Lagos than Ondo. One cannot compare both states. In Ondo, if the government places heavy tax on the citizen, they report to the king. But in Lagos, the situation is different. The concept has already been established. Very soon, they will catch up with Lagos. You will recall that when Lagos started, they (Lagosians) called the tax officials all sorts of names. In Lagos now, the citizens have understood that it is their civic responsibility.